The Cost of Living Richly: Citigroup’s Global Finance and Threats to the Environment

Flying low over a pristine rainforest region in the remote Urubamba region of the Peruvian Amazon, a helicopter brings supplies to a construction site. As the native birds scramble out of the way, the helicopter sets down on a patch of land cleared of forest as part of the Camisea project, one of Latin America’s largest gas developments.

Across the globe in Papua New Guinea, a pipeline from the Gobe oil fields cuts through the forest land and small farms. Roads built to service the project are opening frontier forests to timber companies, increasing the threat of soil erosion that will load the rivers with silt and kill the country’s offshore coral reefs.

Thailand’s Ratchaburi power plant lies just across the border from Burma’s ongoing human rights nightmare. The plant processes gas from the Yadana and Yetagun gas pipelines that are one of the main revenue earners for Burma’s military dictatorship. The pipeline, much of it built by forced labor, cuts through the largest, richest block of moist forest in Indochina.

In the western hemisphere, the battle continues to rage over some of the last remaining old growth forest in the United States: Headwaters Grove in Northern California. While activists fight Pacific Lumber to save spotted owl habitat, the cutting continues. With it, so does the pollution of nearby streams and rivers, choking the spawning ground of the endangered Coho salmon.

At first glance, all of these projects have one thing in common: they damage what’s left of the world’s forests and, by contributing to fossil fuel burning and deforestation, they contribute to the worsening of global warming. But dig a little deeper and they also share a startling denominator. All were made possible through financing by the world’s largest financial institution, Citigroup.

Cut to billboards around many major U.S. cities.

“Who would you rather impress? Your accountant or your children?”
“Make sure all the pictures in your wallet aren’t of dead presidents.”
“Be independently happy.”

These are slogans from Citigroup’s new $100 million advertising campaign. The tag line is “Citi — Live Richly.” It is the juxtaposition between these two presentations of one corporation that is at the center of controversy over the role that the Citigroup plays in financing the fossil fuel, mining and logging industries.

A growing environmentalist campaign is insisting that Citi’s record of financing the fossil fuel, mining and logging industries around the world is fundamentally incompatible with the company’s massive public relations initiative to present itself as the avatar of personal financial security for consumers. Citi-financed projects, say environmentalists, are promoting environmental insecurity — not only damaging local ecosystems, but undermining the livelihood of communities around the world and threatening the well-being of people across the globe through climate change.

Over the last decade, the flows of private finance to support the Third World have rapidly accelerated. Private foreign finance now plays a much bigger role than public monies — including loans from the World Bank and other development banks, and foreign assistance — in determining what big projects get built in the Third World, whether pipelines, factories, mines or energy plants.

But the private funders, of which Citi is the most prominent, exercise far less environmental and social screening of projects they might fund than does even the much-criticized World Bank. The unfolding campaign against Citi aims to change that.

The Finance-Environment Nexus

There is little dispute now as to the perils of global warming and forest destruction, though much hand-wringing remains over who is responsible and what should be done.

There is near-total scientific consensus as to the reality of global warming, and an emerging scientific consensus that the phenomenon — which threatens to submerge vast stretches of coastal lands and lead to surges of tropical disease, among many other ills — is now underway. The five hottest years ever recorded occurred in the 1990s. In 1998, the hottest year ever recorded, severe weather patterns caused more financial loss than they had during all of the 1980s, killing an estimated 32,000 people, displacing 300 million, and causing $89 billion in damages. In January 2001, the Intergovernmental Panel on Climate Change (IPCC) — the global network of all the world’s leading climatologists — cited “new and stronger evidence that most of the observed warming of the last 50 years is attributable to human activities.”

The world’s forests, which act as giant reservoirs of carbon, are an integral part of the planet’s climate system, both a massive carbon source and one of the planet’s best natural lines of defense against climate destabilization. Forest destruction releases vast amounts of carbon into the air, while at the same time eliminating the planet’s ability to absorb carbon. “Forest protection is a key strategy for confronting global warming,” says Mike Brune, campaigns director at Rainforest Action Network. Forests are key to maintaining local ecosystems and supporting indigenous communities. “Old growth forests are home to over 50 percent of the planet’s plant and animal species and three-quarters of the world’s traditional indigenous peoples,” Brune notes.

Yet according to the World Resources Institute, 78 percent of the world’s original old growth forests have been logged or degraded, and remaining intact forests are highly threatened by logging and development. “In this day and age, destroying old growth forests is like hunting whales to extinction or slaughtering elephants for ivory,” says Brune.

The era of old growth logging seems to be coming to a close. Polls and consumption patterns show that the U.S. public is demonstrating opposition to any more use of old growth forests for wood and paper products. In a national poll conducted by the Los Angeles Times last year, nine out of ten people said it is important that wilderness be preserved. Even in the private sector, hundreds of corporations — many small businesses, but also large companies including IBM, Hewlett Packard and Home Depot — have changed their business practices to stop using products from old-growth forests.

Now it is no longer tenable, say environmentalists, for the global financiers to fund project development while ignoring or giving short shrift to urgent environmental problems.

The connection between finance and global warming is not lost on the insurance industry. Forced to pay out claims, large insurers like Swiss Re and Munich Re have begun to evaluate their exposure to the industry which accelerates global warming: the fossil fuel sector. In the year 2000, the Overseas Private Investment Corporation (OPIC) published a report on its investments in fossil fuels. Environmentalists say this acknowledgement by major financial institutions of their own exposure and contribution to the onset of global warming has the potential to signal a fundamental redirection of capital flows in the energy sector away from destructive projects and towards renewable alternatives.

Some institutions have moved to take action, including several prominent European banks. In late 2001, the top Dutch Bank, ABN/AMRO, instituted a policy that prohibits the financing of extractive industries and projects that degrade old growth forests. ABN/AMRO’s statement asserted that ABN Amro will “no longer finance projects or operations which will result in resource extraction from, or the clearing of, either primary or High Conservation Value forests.” The bank will consider exceptions only “where extraction is part of a carefully planned, responsible national forest management program or where the company is FSC [Forest Stewardship Council] certified for operations in that forest.” The policy applies to all sectors that might affect forests, including logging, pulp and paper, mining and oil & gas development.

Herman Mulder, head of ABN/AMRO’s Risk Management division, believes that the new credit practice will be widely adopted quickly. “Companies that manage their environment poorly will suffer financially,” he told the Dutch publication Volkskrant. “Clients and shareholders walk away, employees will seek another boss.”

The industry leader, Citigroup, has yet to adopt this point of view, however. According to Bloomberg Financial Services Analytic in 2001, Citi is the number one funder of oil drilling and new pipelines, with 28 percent of the global market share. Citi is also the top funder of new coal mining, holding 51 percent of the global market share, according to Bloomberg. Citi ranks as third largest funder of forest products and paper production. Citi dominates the financing of projects in sectors that promote global warming and destroy the ecosystems that could offset adverse impacts of climate change.

A survey of Citi’s fossil fuel portfolio makes the company’s strategy abundantly clear: in an age when global warming and forest destruction are widely recognized as global threats, Citigroup chooses to be the top financier in the exploration for new oil and gas and the industries that get those fuels to market. Citi claims to be a global leader, but it is leading in the wrong direction, say environmentalists.

The Bottom Line

“We understand that conducting business in an environmentally responsible manner is an ongoing process, and we are committed to taking a leadership role in the financial industry through our efforts in community, environmental and social initiatives,” reads Citigroup’s statement on its environmental commitment. “We are committed to protection of the environment and the health and safety of our employees and the communities in the more than 100 countries in which we conduct business. We recognize that environmental impact and sustainable development are among the most important issues affecting business today.”

But this rhetorical majesty is not matched by meaningful policies, according to environmentalists. Notably, Citi has refused calls to commit to comprehensive environmental and social criteria in its investment decisions.

“It is difficult to make sense of Citi’s stated commitment to the environment in light of the sampling of projects they fund just in the Amazon Basin,” says Atossa Soltani, director of Amazon Watch, a non-profit organization that works with indigenous and environmental organizations in the Amazon Basin to defend the environment and advance indigenous peoples’ rights. “The OCP pipeline in Ecuador, the CVRD mines in Brazil, the Camisea Gas Field in Peru; these are all projects with enormous environmental and social consequence. They are also projects that are financed by Citi.” The OCP pipeline in Ecuador has recently generated massive protests in Ecuador.

Citi insists it is a leader among financial institutions in incorporating environmental considerations into its lending and other operations, and that its participation in projects leads to better environmental outcomes.

“We have a long history of focusing on environmental concerns and developing policies and procedures that address the kinds of issues that are being raised with these kinds of projects,” says Citigroup spokesperson Christina Pretto. “In fact, Salomon Brothers, one of our predecessor companies, was the first financial institution to implement an environmental affairs program, and the program now covers our whole organization. We think that, given our history and the real infrastructure that’s in place to deal with these issues substantively, to work with our sponsors and get them to address the concerns being raised by people makes our involvement ultimately a positive thing.”

Another concern raised by environmentalists is Citigroup’s failure to capitalize on environmentally beneficial lending and investment opportunities. “Solar panels and small wind turbines have the potential to be the cheapest form of energy for millions of Americans across the country,” explains Phil Radford, executive director of PowerShift, a group working to promote renewable energy technologies. “Citibank has neglected to take advantage of the $4 billion U.S. market in solar loans. This bank is missing the opportunity to help stop global warming by phasing out fossil fuel investments and promoting clean energy now. The irony is that if Citi financed solar for people’s homes, solar energy could be made immediately affordable for millions of Americans today.”

Responds, Citibank’s Pretto: “We are the number one underwriter of state and local government debt in the United States. That is a multibillion dollar market. That financing goes to schools, public transportation, water and sewer projects – all of which are mandated by the Clean Air Act and Clean Water Act. So we have a public finance business that’s focused on underwriting projects that make a real difference in people’s lives. To ignore that would be a real distortion of the role we play in the marketplace.”

Citigroup’s heavy reliance on its consumer base and the public perception of its brand make it highly vulnerable to a campaign that uses public leverage to catalyze change. Tens of thousands of individuals have heeded a call from the Rainforest Action Network to cut up their Citibank credit cards and sign pledges not to do business with Citi until it satisfactorily addresses environmental issues. Many students around the United States have pressured their universities to sever ties with Citigroup, and students have been at the forefront of the pressure for Citi to transform its lending and trading practices.

“As long as Citi is bankrolling rainforest destruction, global warming and the displacement of indigenous peoples,” says Vanessa Pierce, a student leader at Iowa’s Grinnell College. “Students will join together to say ‘Not with my money’ to the world’s most destructive bank. We will continue to ask the tough questions of Citi, like ‘Who is living richly, and at who’s expense'?”

Ilyse Hogue is a global finance campaigner with the Rainforest Action Network.

Citigroup Controversy: Peru’s Camisea Project

As the financial adviser for the $2.7 billion Camisea project, Citigroup will take the lead in arranging the financing for the project, the first major gas development in Peru.

The project consists of two components: upstream gas production and a downstream pipeline to Lima. The consortium members include PlusPetrol from Argentina, Hunt Oil from the United States, the South Korean SK Corporation and others. The U.S. Export-Import Bank, the Inter-American Development Bank, and the Andean Development Corporation, the regional arm of the Inter-American Development Bank, are considering providing additional funding.

The project was originally initiated by Shell and Mobil on May 17, 1996 and hailed as the “contract of the century” by the Peruvian government [see “Peru Goes Beneath the Shell,” Multinational Monitor, May 1997]. Economic uncertainty and high social and environmental costs prompted Shell and Mobil to pull out of the project in the late 1990s, however.

The upstream component of the project is located in the Lower Urubamba River Valley (“Sacred Valley” in Quechua), which has been identified as one of the world’s most biologically diverse regions. A Smithsonian Institute study recognizes the area “to be in nearly pristine condition,” showing no evidence of human activity. The study identified 152 different plant species per hectare, nearly 800 species of birds, 120 species of fish, 86 species of reptiles, up to 69 species of medium and large mammals, more than 300 species of bats, rodents and other small mammals and more than 600 species of invertebrates. Researchers acknowledged that the species richness recorded is undoubtedly only a fraction of the actual diversity present.

The gas pipeline route will traverse the remote biodiverse Vilcabamba range to the west of the Camisea gas field. The Vilcabamba range includes two indigenous person communal reserves and a national park, and contains the Apurímac Reserved Zone, the source of more than 50 rivers that drain into the Amazon basin via the Ucayali River. According to the International Union for Conservation of Nature, “the Vilcabamba region harbors remarkable tree, bird, insect, and small mammal biodiversity, much of which remains to be documented by science.”

The Camisea is home to the Machigengua, the Yora, the Kirineri and the Nanti Indians. The latter three groups have chosen to have virtually no contact with the outside world since the end of the rubber boom in the early 1900s, preferring instead to live by their traditional means. Exposure to the outside world has been disastrous for these populations. Preliminary exploration of the region for the Camisea project between 1981 and 1988 exposed the Yora to whooping cough, small pox and influenza, killing half the population. The remaining population still lives in a reserve threatened by this project. Dozens of Machigengua communities are also located along the rivers inside Camisea’s area of operation. These fishing communities experienced adverse effects as a result of just the preliminary work done by Shell.

According to the World Wide Fund for Nature, 15,000 local people have the potential to be “severely affected” by the project. Shell’s Environmental Impact Assessment found that loss of food resources, contamination of drinking water supplies, diseases, loss or damage to archeological sites and changes to existing economic activity could occur as a result of the project. While the new project area has been modified, Shell’s analysis of impacts is still relevant to the existing project specifications.

Peruvian government officials expect the downstream consortium to invest $800 million on transportation gas pipelines and $300 million to $400 million on distribution pipelines.

However, the downstream consortium needs additional members to carry this cost and funding remains uncertain. It remains unclear whether initial investment secured by the upstream consortium is sufficient. Pluspetrol claims that first stage investments for the upstream segment will total $400 million to $600 million, secured through bank loans, bond issuances and export-import and development banks. The consortium is expected to spend $1.6 billion in the upstream segment, with $2.7 billion allocated to the entire project.

Opponents of the Camisea plan say Pluspetrol, one of the lead consortium members, has an appalling environmental and social track record. In October 2000, a Pluspetrol oil spill on the Marañón River caused ecological disaster, contaminating Peru’s largest protected area, the Pacaya Samiria Reserve. The area’s 20,000 inhabitants, many from the Cocamas-Cocamillas people, suffered diarrhea and skin diseases. Many medicines promised by Pluspetrol never reached affected communities and food provided was wholly inadequate, yet communities receiving company hand-outs had to sign a document expressing “gratitude.” In November 1999, a rupture in a Pluspetrol oil pipeline in the Pucayacu ravine contaminated the Chambira River, causing the Urarina indigenous people to suffer severe health problems.

The Machigengua fear these experiences may be replicated with Camisea. Poor review procedures leave them skeptical about the Peruvian government or the consortium’s commitment to environmental protection, or the Machigengua’s well-being. The Machigengua indigenous organization, COMARU, asked the Ministry of Energy and Mines in November 2001 to delay approval of the Camisea Environmental Impact Assessment (EIA) until COMARU had received and had time to review the document. The Ministry granted the COMARU request for a 90-day extension, but backdated it to September 21, the date of a public meeting on the project. The Ministry did not receive the full EIA until November 17, 2001.

The Ministry of Energy and Mines granted approval of the EIA on December 17, four days ahead of its own deadline and prior to any review by the affected communities. Peruvian organizations are currently considering challenging the EIA in court.

In fact, however, the project began months ahead of any EIA approval. Highways began to be constructed in preparation for equipment transport in early fall, already resulting in significant erosion and without authorization from local owners. In one area, the marked route passes directly through a community’s cultivated gardens and less than 100 meters away from family dwellings and the village school.

Early action was underway at the production site as well. Although the company had no environmental license until December 17, it had already begun moving equipment by barge and by helicopter. Company pilots made up to four flights a day, with significant impact on the local flora and fauna. In December, 300 workers were observed constructing a worker’s camp, pier and other facilities. Locals remarked that construction has been ongoing since late August.

Citigroup says the project will be conducted responsibly and that its role in financing Camisea will help ensure project development is more environmentally responsible.

“We are a financial adviser to the sponsors of the Camisea project,” says Citi spokesperson Christina Pretto. “A critical part of that role is to ensure that the sponsors satisfy every environmental requirement that applies to the project.”

“Another part of that role,” she says, “is to encourage the sponsors to engage in dialogue with and address the concerns by the stakeholders in the projects. That includes governmental organizations, regulators, community groups and NGOs. In fact, the sponsors have held hundreds of sessions with local community groups about the issues involved.”

“Camisea is subject to World Bank guidelines and part of our role is to make sure that Camisea adheres to those guidelines,” says Pretto.

“We’ve heavily counseled Camisea to meet with and address the concerns of the stakeholders.”

— I.H.

Citigroup Controversy: Ecuador’s OCP Pipeline

Citibank financed Perez Companc, an Argentinean oil company and the least financially stable member of the OCP, Ltd. Consortium backing a project to build and manage the Oleoducto de Crudos Pesados (OCP) Pipeline in Ecuador.

The OCP is a 298-mile pipeline that will transport 450,000 barrels of heavy crude oil daily from oil reserves in Ecuador’s eastern rainforest to refineries on the Pacific. The project will double Ecuador’s oil production capacity.

New oil wells, service roads, and flow lines will be built in pristine and protected areas, such as the Yasuni National Park, Limoncocha, Panacocha and the Cuyabeno Wildlife Reserves. Nearby, processing and refining facilities will be constructed.

OCP’s route runs along the geologically unstable Andes range, increasing the likelihood of major oil spills. Much of the crude will flow through pristine and protected regions of high biodiversity, including the Mindo-Nambillo Cloudforest Reserve, which contains threatened and endangered Andean habitats.

The pipeline also threatens local river systems and nearby communities. The influx of construction workers will dramatically increase disease, crime, prostitution, rape, deforestation, food shortages and exploitation of natural resources, endangering the survival of the forest and its indigenous inhabitants.

Citigroup denies any involvement with the OCP Pipeline, since it is not the direct financier of the project. But it was lead arranger for a $200 million line of credit for Perez Companc that was provided the financial stability the company needed to participate in the pipeline venture.

Citibank is a part of the consortium of banks that has signed a $1 billion loan agreement with the Ratchaburi Electricity Generating Company of Thailand. Ratchaburi processes gas from the Yadana and Yetagun gas pipelines in Burma. Earnings from the natural gas sales are crucial in propping up the Burmese military regime.

The pipeline cuts through the largest, richest block of moist forest in Indochina, disrupting delicate ecosystems and threatening enormous environmental damage should a leak or explosion occur.

Burmese military provided security during pipeline construction [see “Blood in the Pipeline,” Multinational Monitor, January/February 1995]. Burmese civilians have long reported being conscripted by soldiers to construct and maintain roads, railways and bridges and farms related to the pipeline, and to serve as military porters.

— I.H.

Citigroup Controversy:
Papua New Guinea’s Gobe Oil Fields

Citibank arranged a $98.5 million loan that made it possible for Chevron and its partners to construct Papua New Guinea’s Gobe oil fields project. This project will drill development wells and build extensive field production facilities and an eight-kilometer pipeline through the pristine rainforests of Papua New Guinea.

The pipeline is being built on unstable land, increasing the chances of a rupture, which would harm many of the 650 bird species and more than 9,000 different flowering plant species found in the area.

Roads built to service the project open frontier forests to timber companies, increasing the threat of soil erosion that will load the rivers with silt and kill the country’s offshore coral reefs. The pollution caused by the project will also degrade vital sources of drinking and bathing water.

— I.H.

Citigroup Controversy: California’s Headwaters Forest

In 1985, Charles Hurwitz’s Maxaam Group bought Pacific Lumber through a hostile and legally questionable takeover for approximately $900 million in junk bonds.

Immediately upon purchase, Hurwitz doubled the rate at which the old-growth trees were being harvested using destructive clear cutting practices.

The Headwaters Forest is made up of 60,000 acres of ancient redwood and Douglas Fir trees. Combined with an additional 140,000 acres, including six smaller ancient redwood groves, it makes up the land holdings of Pacific Lumber Company. These holdings are the most ecologically important, privately held and unprotected stands of ancient redwoods left in the world.

Salomon Smith Barney, a Citi subsidiary, worked with Hurwitz to re-leverage enormous debt incurred during the purchase of Pacific Lumber. In 1993, Salomon Smith Barney invented a new form of “natural resource” security on debt instruments. In the case of Pacific Lumber, such instruments were dubbed “timber notes.” Timber noteholders would receive payments over the life of the note based on harvest sales by Pacific Lumber, with the company promising an unsustainable rate of tree-felling. In 1998, Salomon Smith Barney managed the offering of yet another set of timber notes, bringing in nearly $900 million.

Unsustainable logging in the Headwaters Forest is jeopardizing some of North America’s most rare animals, including the marbled murrulet and the spotted owl. Pervasive erosion due to overcutting is polluting streams and endangering the survival of the coho salmon, currently listed as threatened under the U.S. Endangered Species Act.